Pound May Fall as BOE Expands QE, Euro Eyes Draghi Comments

2013-03-07 10:53:00 Ilya Spivak, Head Strategist, APAC

The British Pound may fall as doves at the Bank of England secure the votes to expand QE. The Euro looks to Mario Draghi’s press conference for policy guidance.

Talking Points

British Pound May Fall as BOE Doves Secure Votes for QE Expansion
Euro Looks to ECB President Draghi’s Presser for Stimulus Guidance

Monetary policy announcements from the European Central Bank and the Bank of England are in focus in European hours. Economists expect the BOE will maintain its asset-purchase program at £375 billion, but a plausible case for an increase in stimulus seems to have emerged. February’s MPC meeting minutes showed three policymakers (King, Miles and Fisher) voting to boost purchases by £25 billion. Last week, Deputy Governor Paul Tucker likewise seemed receptive, saying he was “open to doing more” and adding that “nobody on the committee thinks that QE [is not] a useful instrument anymore”. That means the doves need to secure just one more vote on the 9-member MPC to get their way. Such an outcome is likely to weigh further on the British Pound and we continue to hold short.

The ECB is likewise expected to remain on hold this time around. PMI data suggests recession deepened in the currency bloc in February, feeding some speculation about an easing of monetary policy to offset the de-facto tightening produced by3-year LTRO repayments. The central bank seems unlikely to act against a backdrop rising sovereign risk however, claiming once again that swelling risk premiums priced into bond yields undermine policy transmission. Recent political jitters in Italy have seen yields on the country’s benchmark 10-year note trend higher, hinting the monetary authority may prefer to remain on the sidelines until a concrete government in Rome emerges and funding stress unwinds. That shifts the spotlight to ECB President Mario Draghi’s press conference following the announcement. Clues hinting at imminent easing in the months ahead threaten to weigh on the Euro, while their absence would likely offer support to the single currency.

Asia Session:

GMT	CCY	EVENT	ACT	EXP	PREV
22:30	AUD	AiG Performance of Construction Index (FEB)	45.6	-	36.2
23:50	JPY	Official Reserve Assets (FEB)	$1258.8B	-	$1267.3B
0:30	AUD	Trade Balance (A$) (JAN)	-1057M	-500M	-688M (R-)
2:00	JPY	Tokyo Avg Office Vacancies (%) (FEB)	8.57	-	8.56
3:24	JPY	Bank of Japan Rate Decision	0.10%	0.10%	0.10%
5:00	JPY	Leading Index (JAN P)	96.3	96.1	93.2 (R-)
5:00	JPY	Coincident Index (JAN P)	92.0	92.8	92.3 (R-)
5:30	AUD	Foreign Reserves (A$) (FEB)	A$43.7B	-	A$46.5B

Euro Session:

GMT	CCY	EVENT	EXP/ACT	PREV	IMPACT
6:45	CHF	Unemployment Rate (FEB)	3.4% (A)	3.4%	Medium
6:45	CHF	Unemployment Rate s.a. (FEB)	3.1% (A)	3.1%	Medium
8:00	CHF	Foreign Currency Reserves (FEB)	427.7B (A)	429.5B	Low
9:00	CHF	SNB’s Jordan Discusses 2012 Results	-	-	Medium
11:00	EUR	German Factory Orders s.a. (MoM) (JAN)	0.6%	0.8%	Medium
11:00	EUR	German Factory Orders n.s.a. (YoY) (JAN)	1.6%	-1.8%	Medium
12:00	GBP	Bank of England Rate Decision	0.5%	0.5%	High
12:00	GBP	BOE Asset Purchase Target	375B	375B	High
12:45	EUR	European Central Bank Rate Decision	0.75%	0.75%	High
13:30	EUR	ECB's Draghi Holds Press Conference	-	-	High